Contractor Acquired Material

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Let's suppose I have a CPAF contract with multiple CLINs -- some are for labor, some are for acquiring materials. The materials acquired will be used to build the end-item deliverables required by the contract. The SOW for the contract describes the requirements for the end-item deliverables, but doesn't break out requirements by CLIN. The CLINs were added to the contract as time went on...there were the base CLINs and CLINs added by exercised options and ECPs.

If the contract acquired material on CLIN 0001 and there is some material leftover/unused, can it be used elsewhere on the same contract under a different CLIN? Is there any accountability required to move/use material between CLINs on the same contract?

Many thanks for your time!

Tom

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If the contract acquired material on CLIN 0001 and there is some material leftover/unused, can it be used elsewhere on the same contract under a different CLIN? Is there any accountability required to move/use material between CLINs on the same contract?

Unless there is something in your contract that would prohibit, I don't see any reason why you cannot use contractor acquired property on more than one line item.

If you read the Allowable Cost and Payment clause, FAR 52.216-7 (June 2013) and the Government Property clause, FAR 52.245-1 (April 2012), although they do not expressly require accounting to the line item level, it seems pretty clear that under a CPAF contract you will have to account for contractor acquired property at the line item level.

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If the contract acquired material on CLIN 0001 and there is some material leftover/unused, can it be used elsewhere on the same contract under a different CLIN? Is there any accountability required to move/use material between CLINs on the same contract?

I've never read a requirement in black and white on transferring material from CLIN to CLIN. There is a requirement to issue 2 mods and credit and debit costs from one contract to another. At some point, you need to identify how much and when this material is no longer needed and becomes excess. The govt will have title to that material.

Didn't you mean that if you're transferring property from one contract to another you have to modify both contracts--a mod to delete the property from one contract and a mod to add the property to the other?

As a contractor, my primary concern would be that the contract types and colors of money be the same for the gaining and losing CLINs. From a compliance standpoint, I'm not worried about transfers within the same contract, unless it impacts billings (which it would if I'm moving the material from a cost-type to a FFP CLIN or vice-versa). If a customer has multiple active contracts, I would even accept direction to transfer material between contracts, so long as the direction was in writing by an authorized customer representative. For example we could build widgets on Contract #1 and then transfer residual material to Contract #2, if the customer directed us to do so.

This is especially true on a CPAF contract, where willingness to work with the customer (within reason) might affect the AF determination.

In a related note, on a contract with multiple CLINs -- some of which were added based on acceptance of ECPs -- I wonder how the contractor's personnel figure out which CLIN to charge labor to? Let's say CLIN #003 is for building widget A. During performance it becomes apparent that an Engineering Change needs to happen. The ECP is submitted and approved and the contract is modified by adding CLIN #099 for the changed work--which is changed work for building widget A. How does the contractor know which labor to charge to CLIN #003 and which labor to charge to CLIN #099? It's all labor associated with building widget A. Wouldn't it make more sense (in this example) to modify the contract and add funding to CLIN #003 rather than create a new CLIN? Are there any rules of the road with respect to when a new CLIN is created and when an existing CLIN is modified, with respect to ECPs?

H2H

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In a related note, on a contract with multiple CLINs -- some of which were added based on acceptance of ECPs -- I wonder how the contractor's personnel figure out which CLIN to charge labor to? Let's say CLIN #003 is for building widget A. During performance it becomes apparent that an Engineering Change needs to happen. The ECP is submitted and approved and the contract is modified by adding CLIN #099 for the changed work--which is changed work for building widget A. How does the contractor know which labor to charge to CLIN #003 and which labor to charge to CLIN #099? It's all labor associated with building widget A. Wouldn't it make more sense (in this example) to modify the contract and add funding to CLIN #003 rather than create a new CLIN? Are there any rules of the road with respect to when a new CLIN is created and when an existing CLIN is modified, with respect to ECPs?

H2H:

Aren't you talking about change order accounting--FAR 43.203 and 52.243-6?

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From a compliance standpoint, I'm not worried about transfers within the same contract, unless it impacts billings (which it would if I'm moving the material from a cost-type to a FFP CLIN or vice-versa).

1. "Aren't you talking about change order accounting?" Not exactly. Change order accounting is important when forming the basis of a claim or REA, as it provides evidence of the cost of contract changes. In this case -- at least as I understand the situation -- the government has accepted the contractor's REA and modified the contract. The contract was modified by addition of a new CLIN. So this is really "change order funding" if you will let me use that phrase. Addition of a new CLIN after costs have been incurred is interesting from a charging perspective, since presumably costs were charged elsewhere, or at least other than where the funding is now. But I was interested in the situation where a change order is accepted and costs are ongoing, but now there are two CLINs from which to choose. Why create that choice when modifying the changed CLIN would avoid it? And even if we want to talk about change order accounting, from my experience it is very difficult (often impossible) to segregate the costs of the changed work from the original work. Reality doesn't often break across those clean lines.

2. "I don't understand what you were saying there." I was saying that a hybrid contract with multiple CLINs, each of which is of a different type (e.g. CLIN #001 is FFP, CLIN #002 is T&M, CLIN #003 is cost-type) presents more compliance challenges than a contract where every CLIN is of the same type. In the former case, a cost transfer from one CLIN to another would be risky, but in the latter case I wouldn't care. In my example, assume I'm overrunning CLIN #001 and want to get well by transferring some costs to CLIN #003, which would then be billable since CLIN #003 was cost-type. That's a compliance concern. However, if both CLINs were of the same type, then my concerns would be greatly reduced.

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In the former case, a cost transfer from one CLIN to another would be risky, but in the latter case I wouldn't care.

You would care if each CLIN belonged to a different program or was funded from a different program element. There might be any number of reasons why you might care, even if the CLINS were all of the same contract type.

The OP indicated that the CPAF "contract" acquired the items and there are leftover/unused materials. I'm wondering if they are already paid for under CLIN 0001? Not sure how they would be "added" to other CLINs. To do that for accounting purposes, I suppose one would credit CLIN 0001 then add the cost to the Applicable CLINs for use under those (?)

If the estimated cost for the materials is already reflected in all the applicable CLINs and they have been paid for under CLIN 0001, one could simply reflect the credit under CLIN 0001and show the cost expended under the other CLINs, right?

You would care if each CLIN belonged to a different program or was funded from a different program element. There might be any number of reasons why you might care, even if the CLINS were all of the same contract type.

I understand ACRNs and color of money and, indeed, already covered that in my first post on this thread.

Absent ACRNs and color of money concerns (which are valid), are there any other reasons a contractor should care -- from a contract compliance standpoint -- with governmental bookkeeping issues? What contract clause would drive those concerns?

Joel I was reading between the lines. The OP said there were ECPs and some of those ECPs led to additional CLINs. I assumed the linkage was a proposal from the contractor that identified contract cost/price impacts in the form of an REA. But yes, you are correct, there was no express mention of REAs.

If the estimated cost for the materials is already reflected in all the applicable CLINs and they have been paid for under CLIN 0001, one could simply reflect the credit under CLIN 0001and show the cost expended under the other CLINs, right?

Sure. This is especially true if one CLIN is FFP and the other is Cost-Type.

But think this through. Who pays for the labor involved in processing that credit/debit transaction? Obviously it's the contractor but either the contractor is going to charge the program for the effort as a direct cost, or else the contractor is going to charge the cost transfer activity to its overhead. And if you make the contractor do enough of these inter-contract transfers, it will have to hire additional personnel. And then its overhead rate will go up. If you ever wonder why a contractor's rates are so high, here's a great example of what drives them up.

Sure. This is especially true if one CLIN is FFP and the other is Cost-Type.

But think this through. Who pays for the labor involved in processing that credit/debit transaction? Obviously it's the contractor but either the contractor is going to charge the program for the effort as a direct cost, or else the contractor is going to charge the cost transfer activity to its overhead. And if you make the contractor do enough of these inter-contract transfers, it will have to hire additional personnel. And then its overhead rate will go up. If you ever wonder why a contractor's rates are so high, here's a great example of what drives them up.

H2H, based upon previous posts, I think that 2112LLP is either the contractor or is representing the contractor. I think that the material, if already paid for, would be shown as a refund under one CLIN and then added under another applicable CLIN in the invoice? Whoever handles the invoicing and records is already getting paid to prepare the invoices, aren't they? Of course, that is probably an oversimplification of the process. At any rate, it would be necessary to do something with the leftover materials, anyway! Appears that 2112 just wants to be able to use the extra materials for work on other CLIN's.

Joel you may well be correct. But to your comment, remember that a cost-type CLIN requires that an invoice be supported by allowable, actual, costs. If somebody is going to make a billing adjustment, there must be an associated adjustment to the cost records. Material is often easier than labor, but not always.